How Digital Production & Distribution Are Making Things Worse For Musicians, Not Better

Thanks to digital media & the Internet, anyone can record their music and make it available to the world, and that's a good thing, right? Not necessarily for musicians. One way to explain why is in terms of the Fallacy of Composition, as cited by Jeremy Siegel in his new book The Future For Investors.

Siegel is also the author of the classic Stocks For The Long Run. In the new book, he decries what he calls "the growth trap", the disappointing returns earned by people who invest in new, fast-growing technologies. Such technologies end up rewarding society as a whole with economic growth, but not, in most cases, those who invest in them--think fiber optic cable.

In the course of making his argument, Siegel explains the economic principle of the Fallacy of Composition:

Any individual or firm through its own effort can rise above the average, but every individual and firm, by definition, cannot. Similarly... if all firms have access to the same technology and implement it, then costs and prices will fall and the gains of productivitty will go to the consumer. (p. 105, 1st ed.)

Siegel tells the story of Warren Buffett's early days running Berkshire Hathaway, when it was a money-losing textile company, not the colossal holding company of today. Buffett's managers brought him a series of productivity-boosting proposals to lower labor and other costs. But Buffett rejected all of them, realizing that all his competitors had access to the same "advantages". He realized the net effect would be like what happens when each person watching a parade rises on tiptoe to see better--seems to make sense to the individual, but collectively it's self-defeating. Buffett got out of the textile business. As Buffett wrote in a 1985 annual report: "After each round of investment, all the players had more money in the game and returns remained anemic."

The same thing happens when every musician in the world can make and distribute recordings for next to nothing. The aggregators of this content--the MP3 community sites--often highlight the thousands of uploads they each receive every day. It's good for them, and it's good for consumers, but for the musicians? Maybe not so good. Or let me modify that. It's fine for musicians who aren't looking to get paid. The other ones are watching their already low average income fall even further year over year.

Some digital musicians have long ago absorbed this idea in one form or another and concluded that recorded music might as well be free. As Derek Sivers of CDBaby points out, for an unsigned musician, file sharers are not the enemy, obscurity is, and so unsigned musicians should encourage piracy. I agree (and I think Derek is a good guy running an honest service). But for me the question remains open, for now at least, as to what will really replace the potential revenue--and how much guerilla promotion it takes to be noticed among the 120,000 plus artists on CDBaby or, say, the more than 1.5 million songs on soundclick.com, as those numbers keep growing, every day.

This doesn't mean we should (or could) somehow stuff stuff digital music back in its bottle. But I think we need to look a little closer at some of the Utopian assumptions about it. The truth is likely to be more complicated.

Spencer Critchley
is an award-winning producer, writer and composer with experience in digital media, film, broadcasting and the music
business.

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